Found the whole story:
Sept. 11 claims nag Burlington company
1-24-02
By JIM SCHLOSSER and MARGARET MOFFETT BANKS, Staff Writers
News & Record
An obscure Burlington company finds itself embroiled in a multibillion dollar
controversy with three Japanese insurance companies over claims from the
Sept. 11 terrorist attacks.
The three insurers are members of a risk-sharing insurance group, known as
a "pool," organized and managed by Fortress Re, which operates from a
small office on the edge of downtown Burlington.
The pool may face claims of $4 billion from Sept. 11 and the crash of an
American Airlines jet in Queens, N.Y., on Nov. 12, according to estimates
by the Morgan Stanley investment company in New York.
Fortress Re is owned by Greensboro resident Maurice Sabbah and his
family and by Kenneth Kornfeld, also of Greensboro. The company
apparently faces no insurance liabilities, because it only handled the policies
for the Japanese companies.
One of the three Japanese insurers, Nissan Fire & Marine, has threatened to
sue Fortress Re, claiming it withheld information to the companies about the
risk they faced, according to AFX News Limited, a global financial news
service.
Nissan also said it has stopped doing business with Fortress Re, according
to Bloomberg Business News.
Glenn Drew, counsel for Fortress Re, said his company "fully, accurately and
repeatedly informed" Nissan about risks and other details.
Fortress Re and Nissan "continue to work together in hopes that a possible
settlement to any disputes between the respective companies may be
reached," Drew said.
Another Japanese firm, Taisei Fire & Marine Insurance Co., filed for
bankruptcy in November. It faced claims greater than the company's worth.
The third Japanese insurer, Aioi Insurance Co., has announced it will stop
doing business with Fortress Re in June, according to Bloomberg.
Fortress Re earns commissions and fees by recruiting insurance companies
into pools, managing their insurance policies and settling claims.
Insurance pools are common. They consist of insurers that come together to
share risks on policies with potential for large losses. That way a company
doesn't get wiped out by a catastrophic event. In general, this practice is
known as reinsurance.
Asahi Shimbun, one of Japan's largest newspapers, and various financial
news services have reported the Fortress Re pool has been hit with huge
claims from the loss of five jetliners: the four that terrorists hijacked and
crashed into the World Trade Center, the Pentagon and a field in rural
Pennsylvania; and the plane that crashed, apparently by accident, in Queens,
N.Y., in November.
Drew said the Japanese pool had coverage on the planes, along with "the
liabilities associated with the loss."
He called Morgan Stanley's $4 billion estimates "grossly inaccurate," but he
declined to reveal what he believes is the true figure. Drew said Fortress Re
is "a privately held company and its corporate policy does not permit it to
disclose business information concerning its member companies."
But Fortress Re may be forced to open its files to public view. The Dow
Jones news service reported that the U.S. Bankruptcy Court in New York
could order the company to turn over internal documents regarding how it
organizes reinsurance pools.
Fortress Re was founded in 1972 by Maurice Sabbah, who remains as
chairman and whose family owns 66 percent of the stock. The company
describes itself as an "international reinsurance underwriting manager"
working with companies to provide aviation, marine, fire and other types of
nonlife insurance.
Sabbah is an intensely private man who has emerged in recent years as a
major philanthropist whose projects include American Hebrew Academy,
which opened last fall on a 100-acre campus in western Greensboro. He
referred questions about the company to Drew, his nephew.
Drew required the News & Record to submit written questions.
During its 29 years of business, Fortress Re has had relationships with 17
different insurance companies, Drew said. Since 1985, all of those
companies have been Japanese.
Asahi Shimbun, the Japanese newspaper, reported that documents obtained
from Taisei, the bankrupt company, indicated that other companies that
Fortress Re brought into the pool were responsible for making initial payouts
to settle claims, but that Taisei, Nissan and Aioi were responsible for
reimbursing them.
"In effect," Asahi Shimbun said, "the three Japanese insurers were left with
the full burden of the value of any reinsurance claims."
Glenn Drew denied that the three insurance firms were saddled with all
losses, but he didn't elaborate.
Informa Publishing, another financial news reporting service, wrote that if the
three Japanese companies were unaware of their risk exposure, it was
because they didn't ask or didn't read the fine print of the Fortress Re
contract. The article said their relationship with Fortress Re, dating back to
the 1970s and 1980s, had been profitable.
"None of the companies had reviewed the risk of reinsurance over the last
30 years because revenues from underwriting reinsurance contracts were
never lower than the total insurance payouts and commission paid to
Fortress," Informa said.
When asked if Fortress Re faces insurance claims itself from the September
and November tragedies, Drew did not answer directly. Instead he
explained the nature of the company.
"Fortress Re is not a risk-bearing company and does not itself provide
insurance or reinsurance coverage," he said.
A ruling in a 1995 U.S. Tax Court case -- about whether Japanese members
must pay taxes earned from Fortress Re pools from 1986-88 -- hints at the
company's financial success. The court revealed that Fortress Re's profits for
1986 were $1.8 million, jumping to $5 million in 1987 and soaring to $20.7
million in 1989.
The court said in the ruling Fortress Re has a good reputation for working
with pool members and promptly settling claims, and it plays an important
role in the international reinsurance market.
Most years, insurance premiums to Fortress Re pools offset claims because
air crashes, ship accidents and natural disasters are few and far between.
But as David Threadgold, a business analyst in Japan, told the Chikako
Mogi Reuters News Agency, "Fortress Re caught a very bad cold with five
airliners ... going down in the space of two months."
Contact Jim Schlosser at 373-7081 or jschlosser@news-record.com
Contact Margaret Moffett Banks at 373-7031 or
mbanks@news-record.com |
